Self Directed Investor Inc
SDI: "Empowering investors with ideas and education"
Symbol Lookup »  
Topics:ChinaETFsEarningsEconomyEnergyForexGoldIncomeLessonsIdeasTrading

  • Other news: News from PR Newswire
| More

The Best Dividend ETFs Aren’t Dividend ETFs At All

Tue, Sep 27, 10:14 AM ET, by Michael Johnston

As the ETF industry has expanded rapidly in recent years, the universe of asset classes and investment strategies accessible through the exchange-traded wrapper has increased dramatically. In addition to funds offering exposure to natural resources and volatility–two asset classes previously beyond the reach of many investors–a number of products have popped up that seek to deliver opportunities to tap into intriguing investment methodologies in a cost efficient and time efficient manner.

One area of tremendous interest focuses on dividends; there are literally dozens of ETFs that are designed to concentrate exposure on dividend-paying stocks, from those linked to dividend-weighted methodologies to those with stringent consistency requirements for inclusion. Popular equity funds in the space include DOD, IDV, and HDV; while products with international flavor like PID, DWX, and EDIV can help investors expand the geographic scope of their portfolio’s holdings.

Dividend-focused ETFs may be appealing to a number of different types of investors. For those seeking relatively low risk equity exposure, dividend-focused strategies allow for a dialing back of risk while still keeping a toe in the water. For those seeking to beef up current returns with bond yields at all time lows, some of the yields paid out might be rather attractive.

For investors seeking broad-based stock exposure tilted towards companies with the highest dividend yields, funds such as VIG and DTD might be good fits [see Dividend ETF Special: 25 Equity ETFs With Attractive Distribution Yields]. But for those looking to max out current yield, there are a number of other exchange-traded products without “dividend” in the name that are capable of delivering much more handsome returns:

MLP ETFs (And ETNs)

The Master Limited Partnership (MLP) sector has been seeing a surge in popularity thanks to the robust growth of the ETF industry, which has allowed for cost-efficient exposure to this unique corner of the domestic energy market. MLPs generate fee-based revenues as they own and operate energy infrastructure assets such as natural gas storage tanks and crude oil pipelines [see Do You Need An MLP ETF?].

MLPs have taken on appeal largely thanks to their favorable tax treatment, allowing for investors to rake in a hefty current income. By generating at least 90% of income from natural resource-based activities (such as transportation and storage), an entity can qualify as an MLP and not be taxed as a corporation. In other words, shareholders of MLPs are treated as partners by the IRS, allowing for investors to avoid double taxation of earnings.

There are several offerings in the MLPs ETFdb Category, and with this asset class in particular, the choice of product structure is very important as the tax nuances between ETFs and ETNs can be significant [see MLP Exposure: ETF or ETN]. Below we have briefly highlighted two of the products available to investors:

  • ALPS Alerian MLP ETF (AMLP): This fairly new ETF has been quite popular as it has amassed more than $1.3 billion in assets since its launch in the latter half of 2010. AMLP tracks the Alerian MLP Infrastructure Index, and its underlying portfolio is comprised of 25 components, with two-thirds of all assets going to the top ten holdings alone. The top three MLPs represented in the fund include Enterprise Products Partners, Kinder Morgan Energy Partners, and Magellan Midstream Partners. AMLP recently had an annual dividend yield of 6.4%.
  • JPMorgan Alerian MLP Index ETN (AMJ): This ETN is the largest products offering investors access to the energy MLP sector. The ETN structure gives it a potential leg-up over comparable ETFs in the space since shareholders of AMJ are faced with less administrative burdens by avoiding an annual K-1 tax form [see MLP ETFs: Fact And Fiction]. AMJ recently had an annual dividend yield of 5.3%.

BDC ETNs

Business Development Companies (BDCs) are generally involved in lending money to small and mid-sized companies, often times resembling private equity firms. Similar to MLPs, these entities are eligible for some advantageous tax treatments when certain portions of earnings are paid out. BDCs pay almost no corporate taxes as long as they pay out at least 90% of their profit and capital gains as taxable dividends. BDCs can also earn exemption from the 4% nondeductible federal excise tax if they distribute at least 98% of ordinary income each calendar year.

This asset class boasts a juicy yield and is particularly appealing since it offers exposure to private companies that are simply not accessible to most investors. Achieving exposure to this asset class through an ETN may have some unique tax consequences as the coupon payments from BDCS will be treated as ordinary income for tax purposes [see Tax Advantages Of ETNs]. There are currently two products available offering exposure to BDCs:

  • UBS E-TRACS Wells Fargo Business Development Company Index (BDCS): This ETN holds a portfolio of 26 BDCs, although it effectively offers exposure to more than 1,000 privately held companies through the broad-based portfolios of the component companies. Also as mentioned previously, investors have no direct way of accessing this asset class since the companies are not publicly-traded. BDCL provides investors with 2x monthly leveraged exposure to the same index as BDCS, which recently had an annual yield in the neighborhood of 7.5%.

Mortgage REIT ETFs

Mortgage REITs are often overlooked by many given then ongoing anxiety over the health of the U.S. housing market. Although quite risky, this asset class is very capable of generating impressive returns for investors looking to beef up the current income portion of their portfolios [see How To Find The Right Dividend ETF]. Mortgage REITs are different from traditional equity REITs; instead of owning and operating physical real estate, mortgage REITs issue mortgages or acquire loans and other mortgage-backed securities. It isn't uncommon for mortgage REITs to leverage up to seven or eight times their capital, allowing for significant distribution yields. Some interesting offerings include:

  • iShares FTSE NAREIT Mortgage REITs Index Fund (REM): This ETF is linked to an index that measures the performance of the residential and commercial real estate, mortgage finance, and savings associations sectors of the U.S. equity market. REM holds a shallow basket of 50 securities, with the top ten components accounting for over two-thirds of the entire portfolio. This fund does a very nice job of rounding out exposure to small and mid cap size mortgage REITs, and it recently had an annual yield of about 10.6%.
  • Van Eck Market Vector Mortgage REIT Income ETF (MORT): This new fund tracks the Market Vectors Global Mortgage REITs Index, and requires that the constituent companies derive at least 50 percent of their revenues from mortgage REITs. MORT holds a portfolio of about 25 different REITs, with the largest allocations going to Annaly Capital Management (about 20%) and American Capital Agency Corp (12%).

Disclosure: No positions at time of writing.


SDI Glossary: "Dividend" Definition
SDI Glossary: "Equity" Definition
SDI Glossary: "ETFs" Definition
SDI Glossary: "iShares" Definition
SDI Glossary: "Mortgage REIT" Definition
SDI Glossary: "Yield" Definition
This Article's Word Cloud:   BDCS   BDCs   Dividend   ETFs   ETNs   Index   MLPs   Mortgage   Partners   REITs   This   about   allowing   annual   asset   assets   based   class   companies   current   different   dividend   energy   equity   exposure   from   have   holds   income   investors   least   market   mortgage   natural   number   other   over   portfolio   products   recently   since   that   their   this   those   time   very   with   yield   yields

| More

XLB Crosses Above Key Moving Average Level
Fri, Oct 31, 3:54 PM ET, by ETF Channel

In trading on Friday, shares of the Materials Select Sector SPDR Fund ETF (XLB) crossed ...

SPDR Global Dow (DGT) Shares Cross Above 200 DMA
Fri, Oct 31, 3:54 PM ET, by ETF Channel

In trading on Friday, shares of the SPDR Global Dow ETF (DGT) crossed above their ...

Cimarex Energy Achieves #93 Analyst Rank, Surpassing PepsiCo
Fri, Oct 31, 12:24 PM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

DFJ Makes Bullish Cross Above Critical Moving Average
Fri, Oct 31, 11:44 AM ET, by ETF Channel

In trading on Friday, shares of the Japan SmallCap Dividend ETF (DFJ) crossed above their ...

EFAV Crosses Above Key Moving Average Level
Fri, Oct 31, 11:44 AM ET, by ETF Channel

In trading on Friday, shares of the iShares MSCI EAFE Minimum Volatility ETF (EFAV) crossed ...

EXI Crosses Above Key Moving Average Level
Fri, Oct 31, 11:44 AM ET, by ETF Channel

In trading on Friday, shares of the iShares Global Industrials ETF (EXI) crossed above their ...

PHO Crosses Above Key Moving Average Level
Fri, Oct 31, 11:44 AM ET, by ETF Channel

In trading on Friday, shares of the PowerShares Water Resources Portfolio ETF (PHO) crossed above ...

TZA: Large Inflows Detected at ETF
Fri, Oct 31, 11:34 AM ET, by ETF Channel

Symbols mentioned in this story: TZA Exchange traded funds (ETFs) trade just like stocks, but ...

FXR, ALK, VEC, UAL: ETF Outflow Alert
Fri, Oct 31, 11:34 AM ET, by ETF Channel

Symbols mentioned in this story: FXR, ALK, VEC, UAL Exchange traded funds (ETFs) trade just ...

EIDO: Large Inflows Detected at ETF
Fri, Oct 31, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: EIDO Exchange traded funds (ETFs) trade just like stocks, but ...

Shares of FXY Now Oversold
Fri, Oct 31, 11:14 AM ET, by ETF Channel

In trading on Friday, shares of the Japanese Yen Trust ETF (FXY) entered into oversold ...

EWV Crosses Critical Technical Indicator
Fri, Oct 31, 11:14 AM ET, by ETF Channel

In trading on Friday, shares of the Proshares UltraShort MSCI Japan ETF (EWV) entered into ...

iShares MSCI Japan Small-Cap (SCJ) Shares Cross Above 200 DMA
Fri, Oct 31, 11:14 AM ET, by ETF Channel

In trading on Friday, shares of the iShares MSCI Japan Small-Cap ETF (SCJ) crossed above ...

Permanent Breaks Below 200-Day Moving Average - Notable for PERM
Fri, Oct 31, 11:14 AM ET, by ETF Channel

In trading on Friday, shares of the Permanent ETF (PERM) crossed below their 200 day ...

PowerShares DB Gold Fund (DGL) Enters Oversold Territory
Fri, Oct 31, 11:14 AM ET, by ETF Channel

In trading on Friday, shares of the PowerShares DB Gold Fund ETF (DGL) entered into ...

KBE Makes Bullish Cross Above Critical Moving Average
Thu, Oct 30, 4:14 PM ET, by ETF Channel

In trading on Thursday, shares of the SPDR S&P Bank ETF (KBE) crossed above their ...

EEB Makes Bullish Cross Above Critical Moving Average
Thu, Oct 30, 4:14 PM ET, by ETF Channel

In trading on Thursday, shares of the Guggenheim BRIC ETF (EEB) crossed above their 200 ...

Bank and Brokerage (RKH) Shares Cross Above 200 DMA
Thu, Oct 30, 3:54 PM ET, by ETF Channel

In trading on Thursday, shares of the Bank and Brokerage ETF (RKH) crossed above their ...

Shares of SRS Now Oversold
Thu, Oct 30, 3:54 PM ET, by ETF Channel

In trading on Thursday, shares of the Proshares UltraShort Real Estate ETF (SRS) entered into ...

SLVP Crosses Critical Technical Indicator
Thu, Oct 30, 3:54 PM ET, by ETF Channel

In trading on Thursday, shares of the iShares MSCI Global Silver Miners ETF (SLVP) entered ...

IEMG Makes Bullish Cross Above Critical Moving Average
Thu, Oct 30, 3:54 PM ET, by ETF Channel

In trading on Thursday, shares of the iShares Core MSCI Emerging Markets ETF (IEMG) crossed ...

GDXJ Crowded With Sellers
Thu, Oct 30, 11:54 AM ET, by ETF Channel

In trading on Thursday, shares of the Junior Gold Miners ETF (GDXJ) entered into oversold ...

GDX Crosses Critical Technical Indicator
Thu, Oct 30, 11:54 AM ET, by ETF Channel

In trading on Thursday, shares of the Gold Miners ETF (GDX) entered into oversold territory, ...

EPU Crosses Critical Technical Indicator
Thu, Oct 30, 11:54 AM ET, by ETF Channel

In trading on Thursday, shares of the iShares MSCI All Peru Capped ETF (EPU) entered ...

ETFS Physical Silver Shares (SIVR) Enters Oversold Territory
Thu, Oct 30, 11:54 AM ET, by ETF Channel

In trading on Thursday, shares of the ETFS Physical Silver Shares ETF (SIVR) entered into ...

VXF, TWTR, AAL, TSLA: ETF Inflow Alert
Thu, Oct 30, 11:34 AM ET, by ETF Channel

Symbols mentioned in this story: VXF, TWTR, AAL, TSLA Exchange traded funds (ETFs) trade just ...

Consumer Discretionary Select Sector SPDR Fund Experiences Big Inflow
Thu, Oct 30, 11:34 AM ET, by ETF Channel

Symbols mentioned in this story: XLY, DIS, AMZN, MCD Exchange traded funds (ETFs) trade just ...

IWO, PBYI, TMH, ISIS: ETF Inflow Alert
Thu, Oct 30, 11:34 AM ET, by ETF Channel

Symbols mentioned in this story: IWO, PBYI, TMH, ISIS Exchange traded funds (ETFs) trade just ...

Energy Select Sector SPDR Fund Experiences Big Outflow
Thu, Oct 30, 11:34 AM ET, by ETF Channel

Symbols mentioned in this story: XLE, CVX, EOG, OXY Exchange traded funds (ETFs) trade just ...

IVV, AAPL, XOM, MSFT: ETF Inflow Alert
Thu, Oct 30, 11:34 AM ET, by ETF Channel

Symbols mentioned in this story: IVV, AAPL, XOM, MSFT Exchange traded funds (ETFs) trade just ...

IVW, JNJ, SLB, GOOGL: ETF Inflow Alert
Thu, Oct 30, 11:34 AM ET, by ETF Channel

Symbols mentioned in this story: IVW, JNJ, SLB, GOOGL Exchange traded funds (ETFs) trade just ...

SHY: Large Outflows Detected at ETF
Thu, Oct 30, 11:34 AM ET, by ETF Channel

Symbols mentioned in this story: SHY Exchange traded funds (ETFs) trade just like stocks, but ...

Shares of DBP Now Oversold
Thu, Oct 30, 11:14 AM ET, by ETF Channel

In trading on Thursday, shares of the PowerShares DB Precious Metals Fund ETF (DBP) entered ...

Gold Explorers Getting Very Oversold
Thu, Oct 30, 11:14 AM ET, by ETF Channel

In trading on Thursday, shares of the Gold Explorers ETF (GLDX) entered into oversold territory, ...

BKF Makes Bullish Cross Above Critical Moving Average
Thu, Oct 30, 10:54 AM ET, by ETF Channel

In trading on Thursday, shares of the iShares MSCI BRIC ETF (BKF) crossed above their ...

SPDR S&P Telecom (XTL) Shares Cross Above 200 DMA
Thu, Oct 30, 10:54 AM ET, by ETF Channel

In trading on Thursday, shares of the SPDR S&P Telecom ETF (XTL) crossed above their ...

16.8% of XOP Holdings Seeing Recent Insider Buys
Thu, Oct 30, 10:14 AM ET, by ETF Channel

A look at the weighted underlying holdings of the SPDR S&P Oil & Gas Exploration ...

PX Named Top 25 SAFE Dividend Stock Increasing Payments For Decades
Thu, Oct 30, 9:24 AM ET, by ETF Channel

Praxair, Inc. (PX) has been named to the Dividend Channel ''S.A.F.E. ...

iShares Emerging Markets Infrastructure (EMIF) Shares Cross Above 200 DMA
Wed, Oct 29, 4:14 PM ET, by ETF Channel

In trading on Wednesday, shares of the iShares Emerging Markets Infrastructure ETF (EMIF) crossed above ...

CSJ Makes Notable Cross Below Critical Moving Average
Wed, Oct 29, 4:14 PM ET, by ETF Channel

In trading on Wednesday, shares of the iShares 1-3 Year Credit Bond ETF (CSJ) crossed ...

AIA Crosses Above Key Moving Average Level
Wed, Oct 29, 4:14 PM ET, by ETF Channel

In trading on Wednesday, shares of the iShares Asia 50 ETF (AIA) crossed above their ...

Daily Junior Gold Miners Index Bull 3x Shares (JNUG) Enters Oversold Territory
Wed, Oct 29, 4:14 PM ET, by ETF Channel

In trading on Wednesday, shares of the Daily Junior Gold Miners Index Bull 3x Shares ...

RING Crowded With Sellers
Wed, Oct 29, 4:14 PM ET, by ETF Channel

In trading on Wednesday, shares of the iShares MSCI Global Gold Miners ETF (RING) entered ...

SPDR S&P Regional Banking (KRE) Shares Cross Above 200 DMA
Wed, Oct 29, 4:14 PM ET, by ETF Channel

In trading on Wednesday, shares of the SPDR S&P Regional Banking ETF (KRE) crossed above ...

PRFZ Crosses Above Key Moving Average Level
Wed, Oct 29, 11:14 AM ET, by ETF Channel

In trading on Wednesday, shares of the PowerShares FTSE RAFI US 1500 Small-Mid Portfolio ETF ...

EMHY Crosses Above Key Moving Average Level
Wed, Oct 29, 11:14 AM ET, by ETF Channel

In trading on Wednesday, shares of the iShares Emerging Markets High Yield Bond ETF (EMHY) ...

PSCI Crosses Above Key Moving Average Level
Wed, Oct 29, 11:14 AM ET, by ETF Channel

In trading on Wednesday, shares of the PowerShares S&P SmallCap Industrials Portfolio ETF (PSCI) crossed ...

EGShares Emerging Markets Consumer (ECON) Shares Cross Above 200 DMA
Wed, Oct 29, 11:14 AM ET, by ETF Channel

In trading on Wednesday, shares of the EGShares Emerging Markets Consumer ETF (ECON) crossed above ...

PowerShares KBW Regional Bank Portfolio Breaks Above 200-Day Moving Average - Bullish for KBWR
Wed, Oct 29, 11:14 AM ET, by ETF Channel

In trading on Wednesday, shares of the PowerShares KBW Regional Bank Portfolio ETF (KBWR) crossed ...

EWQ: ETF Inflow Alert
Wed, Oct 29, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: EWQ Exchange traded funds (ETFs) trade just like stocks, but ...

Related videos | all videos »
  More articles:  1 2 3 4 5 6 7 next »

ABOUT US »   ADVERTISE »   CONTACT US »   TERMS OF USE & PRIVACY POLICY »

The Best Dividend ETFs Aren’t Dividend ETFs At All | Self Directed Investor | Copyright © 2008 - 2014, All Rights Reserved

Any ideas and opinions presented in Self Directed Investor content are for informational and educational purposes only, and do not reflect the opinions of BNK Invest, Inc. or any of its affiliates, subsidiaries or partners. In no way should any content contained herein be interpreted to represent trading or investment advice. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. All site visitors agree that under no circumstances will BNK Invest, Inc,. its subsidiaries, partners, officers, employees, affiliates, or agents be held liable for any loss or damage caused by your reliance on information obtained. Read Full Disclaimer.

SDI is associated with: ValueForum.com -- a subscription-based online social networking forum of over 1000 individual investors. | MarketNewsVideo.com -- videos appearing on SDI are produced by Market News Video. | TickerTech.com -- stock quote content appearing on SDI is at least 20 minutes delayed and is powered by Ticker Technologies. | GoldStockStrategist.com -- Edited by Scott V. Nystrom, PhD, Gold Stock Strategist provides analysis on gold mining companies.